Dividend Payout Ratio Formula & Example

Definition: Dividend Payout Ratio (DPR) is used to measure the extent to which earnings per share have been used for paying dividends to stockholders. A low payout ratio can indicate that a company’s dividend is small compared to its earnings.

Formula:
Dividend Payout Ratio = Dividend per Share / Earnings per Share

Example 1:
TTC Company paid out $2.10 per share in annual dividends and had $4.30 in EPS, then the DPR = $2.1 / $4.3 = 48.84%. This means that less then half of the companies earnings went to support the dividend payment.

Example 2:
Thomas Ltd. has an annual earning of $2 million dollars. Total dividends of $400,000 are to be paid out, and the company has 4 million outstanding shares.

Solution:
Earnings per share (EPS) would be $2 million in earnings divided by 4 million shares = $0.50
Dividend per share would be $400,000 divided by 4 million shares = $0.10
The dividend payout ratio = 0.10 / 0.50 = 20%

Example 3:
Calculate the dividend payout ratio from the following data:
Net Profit  $200,000
Provision for taxation $80,000
Preference dividend  $10,000
No. of equity shares  110,000
Dividend per equity share $0.36

Solution:
Earnings per Share = (Net Profit after tax - Preference dividend) / No. of equity shares = (200,000 - 80,000 - 10,000) / 110,000 = $1

Payout Ratio = ($0.36 / $1) * 100% = 36%

* Featured Articles:

Dividend Yield Ratio Examples

How to Calculate Dividend Growth Rate
0 comments: